Buying and Selling Notes and Mortgages
Every week I get an informative email from Old Dawgs REI Network. Recently, Susan Lassiter-Lyons, who has dedicated her life to helping people gain control over their finances, shares information about buying and selling notes and mortgages, some call them trust deeds.
Trust deeds are commonly used in Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia and West Virginia.
Most states like Iowa have mortgages, which you file differently but with the same results. However, a trust deed differs from a mortgage because there are three parties — the borrower (trustor), the lender (beneficiary) and trustee, who purchases an interest in the property from the borrower. If the trustee is paid as promised, he no longer has any claim to the property. But if the borrower defaults, you take over the mortgage and the property is yours.
Buying and Selling Notes and Mortgages or Trust Deeds
Hard money lenders, individual investors and community banks can auction-off or sell-off mortgage notes (the notes can be current or in various states of default)
People can bid on and purchase these notes and start receiving payments from the borrowers
You would become the bank and can service the loan yourself or hire a third-party servicing company that also deals with late pays. FCI is a company Susan has used that can charge as little as $15 per month or .5-1%, per loan. They can also handle property taxes and hazard insurance remittances
How to Invest in Mortgages or Trust Deeds
- Look at most recent quarterly balance sheet that lists liabilities for any bank associated with FDIC insurance
- See the many residential and multifamily loans
- You can check the status of loans (30-60-90-120 days past due), in pre-foreclosure
- You can contact the bank directly to see if you can bid on those notes – you bid less than face value of loans
- Smaller community banks are best to deal with
- Larger banks like Chase may ask you to put down $100K plus just to be on their list to be considered to bid
- Ask the smaller community banks to send a spreadsheet (called a tape) of all deeds of trusts that are 90-days past due that you can bid upon. The spreadsheet says all the details (principal balance, monthly payment, property address, fees, etc.) You can bid on the entire list of “cherry pick” the deeds you want
- Property backs all deeds. You can also research to determine the value of the property
- Ask the bank for a list of all their performing and non-performing notes up for bid
- If you are interested in cash flow, you target discounted notes that are past due (60-180 days past due). The discount on the principal balance of the mortgage (you can sometimes get for 20 cents on the dollar)
For more information, on Buying and Selling Notes and Mortgages contact the FDIC.gov website.
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